Equity boom fails to cheer brokers, retail investors

Near all-time high on the equity market is fuelled by money from FIIs who have gained the most from the current bull run; participation in cash segment has also declined.

Surprise, surprise! The bulls are back on Indian stock markets, and with a bang. After a lull, the markets have rebounded strongly in last few months.

In last five years, there have been two failed attempts to breach the Sensex’s all-time high of 21206.77 it reached in January 2008. Buoyancy in the market has returned with a belief that it could be third time lucky. The US markets have already reached a 5-year high and pundits near home also predict that the rally will continue albeit with some speed breakers.

However, even though markets have been in the green, not all participants have been able to reap benefits from the rally. Retail investors and brokers are still finding it tough to survive in the market.

There are indications that retail investors have largely been sidelined during the rally. “Because of systemic issues like cost of carry-securities transaction tax, speculators and traders have shifted to other avenues like commodities. There is relatively less retail participation in the market. It has also affected the overall volumes and business profiles of the brokerage industry,” vice-chairman of BSE Brokers’ Forum, Alok Churiwala, said.

Echoing his views, Deven Choksey, MD, KR Choksey Securities, said that retail investors, who have registered meagre returns from the stock market especially after the high attained in 2008, seem to have missed the market’s current rally.

Another indicator also suggests that participation in cash segment has declined. The average trade size (rupee invested per transaction) is down to Rs20,600 compared to Rs30.280 in 2007-08. This means that the amount put in by each investor in each trade is still low. Confidence has yet not been restored in the market since the crash of September 2008.

Meanwhile, at 15748 on Sensex in June 2012, it was all gloomy. Pundits were complaining about policy paralysis, decision-making plague at the centre, high twin deficits (fiscal and current account), high inflation and interest rates, Rupee value depreciating and other issues. However, things seem to have changed now. “We believe positive news at domestic as well as the global level, supported the steady rise of the Indian stock market since September 2012,” said Deven Choksey, managing director of KR Choksey Securities.

According to him, at the global level, tapering of concerns about the recession on the back of monetary easing by central banks in Europe, US and Japan has also helped the market. On the domestic font, reforms by the government such as partial decontrol of fuel products, opening up of retail and aviation sectors to FDI and postponement of GAAR has helped boost market sentiments.
The biggest driver of the rally in equity is easily the foreign money inflows. Since June 2012, foreign financial institutions (FII) have invested Rs 1 lakh crore in the market. For the last 8 months, the FIIs have been net buyers in the market. On the other hand, mutual funds are net sellers to the tune of Rs 16,328 crore in the market.
“There is also an increase in risk-on trade by FIIs. Mutual funds continue to witness redemption pressure in recent months which indicates retail investors are getting 2008 prices back,” Choksey said.
According to experts, fundamentally the market looks strong and offers cheap valuations. “The biggest difference between 2008 and 2013 is the valuation. During this period, corporate profits have increased by 65% and currency has depreciated by 25%. It suggests that even at 20200 points, Sensex share prices look attractive,” chief investment officer, Angel Broking, Rajen Shah said.